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ActiVision Blizzard 3Q18 results in line, but 4Q forecast disappoints

14 November 2018

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by Anchor

Activision Blizzard on Thursday (8 November) reported adjusted 3Q18 earnings of USc52/share, which was above the Refinitiv consensus estimate of USc49/share, while revenue (-13% YoY, likely due to a tough comparison with 3Q17 which featured the launch of “Destiny 2″) was in line with expectations at $1.66bn. Net income rose to $260mn, or USc34/share, in 3Q18, from $188mn, or USc25/share in 3Q17 as sales of “World of Warcraft: Battle for Azeroth” and “Destiny 2: Forsaken” boosted profit. However, Activision Blizzard’s 4Q18 forecast disappointed investors – the company said it expected earnings of USc43/share on $2.2bn in revenue, while Refinitiv consensus analysts’ estimates were expecting earnings of $1.34/share on revenue of $3.06bn. This saw the share price drop c. 11% bringing the price down to as low as $55.80 in extended trading on the day.

The company sounded mostly bullish on its analyst call although COO Coddy Johnson did acknowledge that Destiny 2 was underperforming and currency fluctuations outside the US are presenting “headwinds.” Although initial sales of “Call of Duty: Black Ops 4″, the latest version of its blockbuster franchise which was released on 12 October, disappointed investors who had expected higher sales, the game earned more than $500mn in the first three days of its release. It also beat “Call of Duty: Black Ops III”, on a variety of sales-related measures including setting a new launch-day record as the biggest day-one digital release in Activision’s history, according to Bloomberg. Nevertheless, the firm said there is still “execution risk in the air,” although it sees strong engagement with all of its core franchises.

Activision Blizzard’s engagement numbers were also lower, slipping from 352mn to 345mn monthly active users (MAUs) QoQ, with King accounting for 262mn MAUs (vs 270mn in 2Q18), Blizzard for 37mn (unchanged QoQ) and Activision’s rising from 45mn to 46mn. “World of Warcraft: Battle for Azeroth” set a new day-one franchise record with more than 3.4mn units sold-through. “World of Warcraft” engagement also grew rat a robust QoQ rate.

Activision Blizzard delivered $1bn of in-game net bookings in 3Q18 and a record $3bn YTD. In the quarter under review, King had two of the top-10 highest-grossing titles in the US mobile app stores for the twentieth quarter in a row, with Candy Crush Saga at number 1 again. Meanwhile, King’s advertising business continued to exceed expectations with net bookings growing c. 50% sequentially (albeit it off a relatively small base).

Activision Blizzard share price dropped to a 15-month-low on Friday (09 November) as Activision’s reveal of its Diablo Immortal game for mobile disappointed fans especially because of the company’s decision to release a mobile micro transaction-pumping app instead of a PC game.

The Activision share price is down 18% WoW.

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